HSBC says Sweden and Norway will outperform the rest of the developed world

People stroll at the Drottninggatan shopping street in central Stockholm on November 10, 2020, amid the novel coronavirus Covid-19 pandemic.

With much of Europe reverting to lockdown measures over the past month in a bid to curb resurgent coronavirus outbreaks, the northernmost tip of the continent looks set to continue outperforming into 2021, according to HSBC .

Both Sweden and Norway notched better-than-expected recoveries in the third quarter, with GDP (gross domestic product) expanding by 4.3% and 5.2% respectively after the second-quarter slump at the height of the coronavirus crisis.

Alongside the positive news on vaccines driving optimism about a global economic recovery in 2021, HSBC global economist James Pomeroy said in a research note Monday that the degree of fiscal support available in both countries offers cause for a rosier outlook than the rest of the developed world.

“Like much of the world, Scandinavia’s economies saw a strong rebound in Q3 2020. Growth rates may not look as strong as elsewhere in the world on a quarterly basis, but the annual declines are smaller than most developed economies,” Pomeroy said.

Both economies tightened restrictions over the past month, despite Sweden’s previous skeptical stance on lockdowns. Although not quite as stringent as the measures taken elsewhere on the continent, Swedish Prime Minister Stefan Lofven has urged the public to avoid gyms, libraries and restaurants and cut the limit on public gatherings from 50 to eight.

“This will clearly mean headwinds for consumption in the second half of Q4 – and so we cut our growth forecast for the quarter to -1.7% (from +1.4%),” Pomeroy said.

Norway has fared slightly better, with fewer than 70 deaths as a result of Covid-19 since July, while the GDP rebound of 5.2% after the second quarter’s 6% contraction leaves the economy on a firmer footing than much of the continent.

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“Based on monthly GDP data, as of September, the economy was just 2.2% smaller than at the end of 2019. However, following an upturn in COVID-19 cases in early November, the government opted to issue guidance for people to ‘have as little social contact as possible’ to fight the outbreak,” Pomeroy said.

“The drag to consumption in the second half of Q4 will likely mean a negative print here too (we look for -1.1% q-o-q, compared to +1.4% previously). However, owing to a better Q3 than we had anticipated, our 2020 forecast is unchanged at -3.9%.”

The potential rollout of vaccines is expected to facilitate a sharp rebound in 2021, and Pomeroy suggested the “enormous” fiscal space available to Sweden and Norway will continue to be deployed, with both countries having supported businesses and incomes well through 2020, limiting the scarring compared to other developed economies.

“On top of this, 2021 budgets are aiming to invest in new avenues of growth, such as the green economy, and to create more jobs in new industries,” Pomeroy said.

“The ability to fund this transition means that the region should outperform the rest of the developed world, even after a November setback.”


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